Mexico Aims To Tap World’s Fourth Largest Shale Gas Reserves

With estimates of shale gas reserves ranging from 150- to 680 trillion cubic feet (Tcf) and rapidly increasing domestic gas demand, Mexico is turning its attention to evaluating the massive shale gas formations in the eastern half of the country.

Pemex Exploration and Production estimates shale gas reserves between 150- and 460 Tcf while the U.S. Energy Information Administration puts the potential at 680 Tcf. A Pemex official declared earlier this year that the company would invest $8 billion to drill 4,000 wells and produce 1.0 billion cubic feet (Bcf) of shale gas per day.

Details of Mexico’s shale gas reserves and coalbed methane were discussed at a meeting on “New Opportunities for Unconventional Resources in Mexico: The Extension of the Eagle Ford Shale Play and Coalbed Methane Gas” hosted by the Institute for Energy Law’s Oil and Gas Practice, and International committees in Houston on Aug. 23. Luis Ramos, planning manager, Pemex E&P, Javier Estrada, commissioner, National Commission for Hydrocarbons, Nicolas Borda, partner, Borda y Quintana, and Stan Harbison, vice president, research and analysis, Energy Policy Research Foundation, made presentations.

Pemex recently completed its first shale gas well -- the Emergente 1 -- that confirmed the Eagle Ford shale does extend into Mexico into Coahuila state. The well cost an estimated $20 million to drill, and its initial production was nearly 3.0 million cubic feet per day (MMcf/d). The well was completed with 17 frac stages in a 4,500-ft lateral at a depth of 2,500 m (8,250 ft). Production began from the well in May.

“The continuity of the Eagle Ford was proved by Emergente 1. We are now optimizing drilling and completion costs,” he emphasized. “We have to accelerate the learning curve for the production of these resources. We have to generate predictive models of brittleness and ductility to define areas that are susceptible for hydraulic fracturing. We will evaluate the regional potential of shale gas and provide the best estimate of resources in place.”

Ramos explained that there were five areas where Pemex is focusing its efforts -- Sabinas-Burro Picachos, Chihuahua, Burgos, Tampico-Misantla and Veracruz. Between 2011 and 2014, Pemex will drill at least 20 wells to evaluate these areas, depending on the capex and what funds the government will allocate to Pemex.

Mexico’s current gas resources are around 61 Tcf. Even at the lower end of the Pemex reserve estimate, the shale gas potential would more than double the current reserve estimates in the country, he continued.

In the Burgos area, Pemex estimates there are 43,000 square kilometers (sq km) of shale formations at depths from 2,500 to 4,000 m (8,250 to 13,200 ft). The Eagle Ford and Agua Nueva shales are estimated to contain 27-87 Tcf.

“We have a program to drill six wells in the next two years to reduce the uncertainty,” he stated.

The Sabinas-Burro Picachos area covers 43,500 sq km with shale formations at depths of 1,000 to 5,000 m (3,300 to 16,500 ft). Resources are estimated at 55- to 162 Tcf by Pemex. “We plan to drill six wells to evaluate the potential in the next year,” he added.

The Tampico-Misantla region includes 37,000 sq km with shale at depths ranging from 1,000 to 5,000 m (3,300 to 16,500 ft). The shale contains dry gas and light oil with reserves likely to be between 20- and 60 Tcf.

In Chihuahua, there are 33,000 sq km of shale formations at depths from 3,000 to 5,000 m (9,900 to 16,500 ft). The shale gas is dry.

“We want to identify exploration locations in the plays. The La Casita, Eagle Ford, Pimlenta, Agua Nueva and Maltrata plays are where shale gas has been identified,” Ramos said.

Estrada pointed out that gas demand is expected to grow by 2.4% per year from 2010 to 2025, according to the Mexican Dept. of Energy. By 2025, demand will be 5.0 Bcf/d higher that it is today.

“Mexico has not promoted gas development,” he explained. “New infrastructure in transportation, storage and distribution is needed. We have limited transportation capacity in the country, and much of that is at full capacity.”

The government is putting more pressure on Pemex for strategies that are focused on gas. He noted there is more emphasis on exploration in the deepwater Gulf of Mexico (water depths greater than 500 m [1,650 ft]). Sixteen wells have been drilled so far. Mostly gas has been discovered.

One field – Lakach – is being developed. The unit cost for developing this field is around $3.20 per thousand cubic feet (Mcf). The Piklis-1, with recoverable reserves of around 600 Bcf, will also likely be developed.

“If natural gas prices remain below $5/Mcf, it will be very challenging to make deepwater developments economically viable,” Estrada explained.

Shale gas estimates in U.S. fields range from $2 to $6/Mcf for development, he continued. “We have to study more gas markets before we can say what gas prices should be. Many gas projects have marginal economics and that’s a reality. A tax regime for low prices will be needed.”

There are risks to shale gas projects, he noted. Groundwater will be a problem since it takes 7.0- to 15 million liters of water to drill and frac each well. Other risks include noise, damage to roads, and traffic congestion and flow.

Regarding regulatory issues, “all regulations that apply to oil and gas production will apply to shale gas. Additional regulations are needed for administration, design, location, spacing, operations and abandonment,” he said.

For coal-bed methane, Borda explained that regulations for extraction have not been issued. “Regulations have been sent to COFEMER and still nothing has come out. These cover the environment, safety and technical issues.”

Amendments were sent to regulators this year to make it easier to get permits. “No one has applied for applications for permits while the legal framework is being formed.”